Litigation: The bond requirement for preliminary injunctions

One of the most often overlooked aspects of preliminary injunctions and temporary restraining orders (TROs) is the matter of a bond. The traditional requirement, since codified in the Federal Rules of Civil Procedure, is that should a preliminary injunction be granted, the movant be required to post a bond that will reimburse the respondent for any harm done should it turn out that, after discovery or trial, when the facts of the case have been more fully uncovered, the injunction should not have been granted.

Despite its common sense nature, though, the bond requirement is not always enforced. While several federal circuits have agreed that the bond requirement is mandatory, and waiving it is reversible error, other circuits have interpreted the language of the federal rules differently. They believe that the issue of a bond for preliminary injunctions is discretionary and can be waived by the court. Whether a bond is mandatory or not also varies from state to state, making the existence of a bond requirement another factor to consider when choosing a forum for litigation.

The recent Cracker Barrel case is a good illustration of how the circuits’ split on the bond requirement can reshape a case. In that case, Kraft sued Cracker Barrel Old Country Store for trademark infringement, and filed for a preliminary injunction. Because the case was filed in the Northern District of Illinois, however, with the 7th Circuit holding that the bond requirement is mandatory, Kraft was forced to post a $5 million bond, even though the court found their arguments against the preliminary injunction highly persuasive. While many of the documents in that case are sealed, it is worth noting that according to the witness list tendered for the hearing on the motion for a preliminary injunction, Kraft did not call a witness to testify regarding the amount of the bond. That might have proven costly, as the original amount of the bond, $1 million, was revised upwards to $5 million just a few days after the motion was granted. That said, even in cases where the bond is mandatory, a court may sometimes require only a nominal amount of money to be posted by the movant.

One important aspect of the bond that is often overlooked is the use of experts at the bond hearing to assist the court in determining the amount of bond required. In many cases, the court is not particularly well-situated to determine the extent of the bond. In theory, the amount should be however much damage would be done to the respondent should the court later rule that the injunction was erroneously granted. Because TROs and preliminary injunctions are typically granted early in the litigation process, though, before the bulk of the discovery process, it can be quite difficult to make an accurate assessment of these prospective damages. By bringing in an expert, though, an attorney can help set a bond amount that is both reasonable and accurate.